Spillovers of the US real and financial uncertainty on the Euro area

Yassine Bakkar; Rachatar Nilavongse; Anup Kumar Saha

doi:10.1080/13504851.2020.1808166

Spillovers of the US real and financial uncertainty on the Euro area

Yassine Bakkar, Rachatar Nilavongse, Anup Kumar Saha

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Abstract

We study the spillovers of US real uncertainty and financial uncertainty shocks on Euro area economic activity in an SVAR framework. We find that a rise in US real or financial uncertainty triggers a decline in industrial production and an increase in credit spreads in the Euro area. The adverse effects of financial uncertainty shocks on Euro area industrial production are larger than those stemming from real uncertainty shocks (−0.8% versus −0.4%) due to a larger extent of financial friction. The contribution of US financial uncertainty shocks, vis-à-vis US real uncertainty shocks, to the Euro area is quantitatively more important.

Original language	English
Pages (from-to)	1249-1258
Journal	Applied Economics Letters
Volume	28
Issue number	15
Early online date	19 Aug 2021
DOIs	https://doi.org/10.1080/13504851.2020.1808166
Publication status	Published - 01 Sept 2021
Externally published	Yes

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Spillovers of the US real and financial uncertainty on the Euro area
Copyright 2020 Informa UK Limited, trading as Taylor & Francis Group. This manuscript is distributed under a Creative Commons Attribution-NonCommercial-NoDerivs License (https://creativecommons.org/licenses/by-nc-nd/4.0/), which permits distribution and reproduction for non-commercial purposes, provided the author and source are cited.
Accepted author manuscript, 319 KBLicence: CC BY-NC-ND

Cite this

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AB - We study the spillovers of US real uncertainty and financial uncertainty shocks on Euro area economic activity in an SVAR framework. We find that a rise in US real or financial uncertainty triggers a decline in industrial production and an increase in credit spreads in the Euro area. The adverse effects of financial uncertainty shocks on Euro area industrial production are larger than those stemming from real uncertainty shocks (−0.8% versus −0.4%) due to a larger extent of financial friction. The contribution of US financial uncertainty shocks, vis-à-vis US real uncertainty shocks, to the Euro area is quantitatively more important.

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Spillovers of the US real and financial uncertainty on the Euro area

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